Dec 27, 2008

India - Energy policy wants end to fuel subsidies

The government on Friday approved the Integrated Energy Policy that calls for a swift transition to a market-determined pricing of petroleum products in line with global prices.

“A phased adjustment of domestic petroleum prices to trade parity prices must be undertaken in a relatively short period,” the policy said. This means a mix of import and export prices should determine petrol and diesel retail prices, rather than being fixed by government through a subsidy regime.

At present, the government issues bonds to oil companies to ensure high crude oil prices do not immediately translate into an increase in retail prices of petroleum products.

“A monitoring committee chaired by cabinet secretary has been set up to review the progress of implementation of the policy,” Home Minister P. Chidambaram said after a meeting of the cabinet that approved the policy.

The policy also favoured market-determined prices of coal. It also called for building strategic stockpile of nuclear fuel to counter the risk of disruption of international fuel supply and suggested acquiring energy assets abroad.

The Integrated Energy Policy report of the Planning Commission, which provides the basis for these measures, however, is not so bullish about India’s nuclear development programme.

“Even if a 20-fold increase takes place in India’s nuclear power capacity by 2031-32, the contribution of nuclear energy to the country’s energy-mix is at best expected to be 4 to 6.4 per cent (of the total power produced in the country),” the report said. Currently, 17 nuclear reactors produce only 4,200 MW of a total of 1,70,00 MW of power produced in the country.

To sustain eight per cent growth through 2031-32 India needs to increase its energy generation to 8,00,000 MW, the policy said.